Monday, November 2, 2009

Are the Bunkrupt Skies the Friendliest?

Though it's not available yet, a working paper by University of Virginia economists Federico Ciliberto and Carola Schenone may interest blog readers.  See Are the Bankrupt Skies the Friendliest? (Working Paper, Oct. 12, 2009) (available from SSRN here).  From the abstract:

We use data from the U.S. airline industry to investigate whether firms operating under Chapter 11 protection systematically and permanently restructure their real product-market operations by changing the variety and the quality of the products that they offer. We further analyze whether the bankrupt firm’s competitors introduce and maintain changes in their product market. We find that bankrupt firms significantly decrease the frequency of flights between airports, the number of destinations that they serve, and the probability that they provide non-stop service in a particular market. These changes outlive the firm’s bankruptcy period. We do not find evidence of statistically and economically significant changes by the airline’s competitors along any of the dimensions above, except for a significant increase in the number of destinations the competitors serve. With regard to the quality of services, we find that the bankrupt firms temporarily lower the percent of cancelled flights and the percent of flights with a delay upon arrival of at least 15 minutes. Both of these changes are temporary, as cancellations and delays return to pre-bankruptcy levels once the bankrupt firm emerges from bankruptcy court protection. Finally, we find that the age of the fleet flown by bankrupt firms declines. This change is permanent.

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